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Our Analog Plays Out

Better late than never. Our analog has finally played out, 11 days later than expected. As we forecast would happen back on March 27 [see: A New Analog], the trillions that have benefited either directly or indirectly from the yen carry trade [explained HERE] are now suffering from the USDJPY’s decline. From that original post five months ago:

Back to the 2012-13 timeframe: USDJPY first closed at or below (at) its SMA200 again on Oct 23, 2013 a total of 366 days (≈1 year) from Oct 22, 2012. The equivalent this time around would be Aug 13, 2015.

The chart below from July 17 [see: Analog Update] shows that original USDJPY target (as well as a potential earlier date): The pair went up to tag our upside target, and has now finally returned to earth — plunging below the SMA200 target as well as the vital .618 Fibonacci level (in yellow below.)

Remember, the yen carry trade depends on a depreciating yen (increasing USDJPY.) An appreciating yen breaks the cycle, and we get crazy declines in a market that has been propped up so long by the BoJ’s actions.

Want higher prices again? Simple: the BoJ must announce an expansion in QQE (the Fed could also play a role) or at least make sure USDJPY gets a very big bounce right here. Key levels to expect after the break…